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Sentiment positive but caution prevails, say PE/VC investors

10 March, 2016

The recent Union Budget has lifted hopes for foreign investors with its announcements on easing business for better capital inflow into India. As the dust settles and India Inc gets clarity on who will be affected and how, industry leaders are gearing up with their strategies to scrutinise, allocate and calculate their returns.

VCCircle did a quick dipstick check to gauge the mood of investors, corporate executives and fund managers who took part in the VCCircle Indian Limited Partners Summit 2016 on what will be their course of action.

Private equity placement firm Liberty Global Partners’ director of Asia-Pacific emerging markets, Bryan Stewart, says the mood of general partners at PE funds is very different from five years ago when he last attended the VCCircle event. “There were a lot of GPs back then that were in pain and the mood was pessimistic,” he said. “I am curious to see what the attitude among GPs is now.”

Stewart also said that there are fewer private equity GPs now and a lot of new funds are trying to raise capital.

Many investors also see India as a rising power among Asian countries. The stock market meltdown in China has helped India gain importance. “I think for investors in Asia, it used to be earlier dominated by China,” says Michael Liu, senior vice president at Portfolio Advisors (Hong Kong) Ltd.

Liu said it is a lot harder to get good transactions in China just based on relationships because of an anti-corruption drive. “It is easier to find promoters in India and doing control transactions now. Even the valuations are a lot lower than before. It is also a very interesting climate because GPs have consolidated and the new ones now are differentiating themselves in their investment strategy,” he added.

Liu cites Gujarat’s infrastructure as an example of improvement in the ease of doing business but he is still realistic. “We are cautiously optimistic and keeping an eye out for the right deals as we are very selective now,” he said.

While Portfolio Advisors plans to invest in at least two funds in the coming 18 months, Liberty Global has also prioritised India higher than in the past few years. Some are more cautious though.

“Fiscal deficit containment should be seen as a positive sentiment, but if the growth story falters then that would impact investments,” says Bharti Gupta Ramola, markets and industries leader at PwC India. “There are legislative agendas like the GST bill and the bankruptcy bill that, if moved, will be very useful.”

Some participants see 2015 as a high benchmark for deal activity. “The year 2015 was one of the best years for fundraising in India but we are now seeing competition from other Asian countries like Bangladesh and the Philippines. Smaller markets are attracting more investments,” says Tarun Bhatia, managing director at due diligence services provider Kroll.

Bhatia also said that it is not all rosy for GPs. “Not every GP will be able to raise funds as LPs will become selective. LPs are also selective because of the churn in funds that has happened in the past few years,” he said.

Another major change will be in the time taken to complete a deal. “In the past, there used to be a rush to do transactions but now GPs are willing to hold back for due diligence,” Bhatia said. He also expects a rise in controlled deals.

Overall, the venture funding space will continue to have a positive run. Investors will allocate more and expect much more from this segment. “Deal flow in the startup and angel investing space has been fantastic,” says Shekhar Jadhav from family office Enemtech Capital. “We are definitely open to increasing our allocation. Over the last two years, the investment horizon has turned positive.”


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Sentiment positive but caution prevails, say PE/VC investors

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